Onto Innovation Inc. (ONTO) | The Buildout — AI Infrastructure
The Verdict
Onto Innovation makes the metrology and inspection tools that semiconductor manufacturers use to check their work. The tools measure how thick films are, spot defects, and inspect the tiny bumps and interconnects that link a chip to its package. That matters more as AI chips moved to stacked high-bandwidth memory and 2.5D and 3D packaging, because each added layer and each smaller bump raises the process-control intensity of the build. Onto also sells lithography for panel-level packaging and the software that ties the measurement data together.
| Market Cap | — |
| Revenue (TTM) | $1.1B |
| Revenue Growth | +8.1% |
| EBITDA Margin (TTM) | 22.0% |
| Net Cash | $410M |
| Earnings Beats | 4 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Management raised its 2026 advanced packaging growth guide from over 30% to more than 50% in a single quarter, and lifted advanced nodes from mid-teens to about 25%.
- Full-year 2026 revenue is guided above $1.3 billion, more than 30% growth, and Q2 2026 revenue of $343 million came in above the $320–330 million guide. Backlog surpassed $1 billion as of the August 6, 2026 release.
- A $240 million volume purchase agreement with an unnamed HBM customer covers Dragonfly 2D and 3D bump metrology through 2027, including more than $60 million of 3D metrology.
- Onto bought a 27% stake in Rigaku for about $710 million, with a board seat and AI Diffract software licensing at nearly 100% margin.
- Margins are guided to keep expanding: at least 50 basis points of gross-margin improvement per quarter in Q3 and Q4 2026, and a Q4 exit operating margin above 30%.
What We’re Watching
- The $240 million HBM volume purchase agreement was announced on February 19, 2026 but was not updated on the May 5 call.
- Customer concentration remains high: three customers were between 13.3% and 14.4% of Q1 2026 revenue, and two customers accounted for about 27.0% of net accounts receivable.
- Precision optics suppliers are a specific strain point, with component lead times that can exceed six months and new-supplier qualification that can take up to a year.
- The $1.3 billion convertible notes due 2031 carry a 0.00% coupon but add debt and potential future dilution, and the Rigaku stake will be marked to fair value each reporting period.
The thesis looks stronger than it did at the start of 2026. Management raised both segment growth guides, set a full-year revenue target above $1.3 billion, then beat the quarterly number it had guided; backlog passed $1 billion, Dragonfly G5 moved from evaluation to qualification, and the Rigaku stake adds an X-ray and software layer on top of the optical tools. The unresolved piece is the 2027 step-up: G5 is still a small part of 2026, the HBM agreement has not been refreshed, and the panel and logic ramps that carry the model are all still ahead. The open question is whether that pipeline converts into production orders on the schedule management describes.
Earnings Beat
Onto reported Q2 2026 revenue of $343 million, a record Q2 and above the $320–330 million guidance range it had reiterated on May 5. Gross margin was 53.4%. Backlog surpassed $1 billion, a new milestone disclosed with the release. The source set does not include a full Q2 income statement, segment split, or updated Q3 guidance.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $343M | $292M | $254M | +35.3% |
| Gross margin | 53.4% | 50.1% | 48.2% | +520bps |
| EBITDA | $104M | $64M | $46M | +124.7% |
| EPS | $1.21 | $0.68 | $0.69 | +74.8% |
| Backlog | >$1 billion | n/a | n/a | — |
We're actually getting requests to pull in and serving those requests to pull in G5 shipments. So in fact, we'll be shipping — we've shipped several systems in Q1, will be shipping more into Q2, and even more in Q3 and Q4.— Mike Plisinski, CEO, May 5, 2026
Management tone: The source set carries no call commentary for the June 2026 quarter; the read is from the May 5, 2026 call, where management's tone moved up a step from the prior quarter. Advanced packaging growth went from over 30% to more than 50%, advanced nodes from mid-teens to about 25%, and the company set a full-year revenue target above $1.3 billion, all with specific figures rather than qualitative language. Management was direct on Dragonfly G5 pull-in requests and on expecting to outgrow wafer-fab equipment again in 2027, corrected an analyst who called the G5 win a foundry win, and declined to break out Rigaku per-tool licensing economics.
Management Guidance
For FY2026, management guided revenue of greater than $1.3 billion, more than 30% growth, with advanced packaging up more than 50% and advanced nodes up about 25%. Second-half revenue is expected to be at least 15% above the first half. Gross margin is guided to improve at least 50 basis points per quarter in Q3 and Q4, with a Q4 exit operating margin above 30%. For Q2, guidance was revenue of $320–330 million, gross margin of 56.0–56.5%, operating expenses of $90–92 million, an operating margin of 28.0–28.6%, and non-GAAP EPS of about $1.69 at the midpoint, on assumptions of a roughly 15% non-GAAP tax rate and a share count slightly above 50 million. Management flagged memory, fuel, and shipping input-cost headwinds plus R&D and service investments, while pointing to extended-factory benefits as the margin driver. No updated full-year guidance appears in the source set after the Q2 beat.
Trajectory
Revenue ran $218 million in the September 2025 quarter, then $267 million in December 2025, $292 million in March 2026, and a record $343 million in June 2026 — the last above the guided $320–330 million. The code-computed signal flags the four quarters through March 2026 as decelerating on a sequential basis, even as the full-year guide calls for more than 30% growth. Margins are the cleaner direction: gross margin went from 50.1% in the March 2026 quarter to 53.4% in June, and management has committed to at least 50 basis points of sequential gross-margin improvement in each of Q3 and Q4, exiting the year above a 30% operating margin.
The Model
The model projects FY+1 revenue of $1,450 million and EBITDA of $523 million, a 36.1% margin, then FY+2 revenue of $1,950 million and EBITDA of $766 million, a 39.3% margin. The near-term anchor is the company's own guided path — full-year 2026 revenue above $1.3 billion and the Q3/Q4 margin cadence. The FY+2 step-up would require the advanced packaging, Dragonfly G5, HBM, and panel-level ramps to convert on schedule, which management describes as multi-year work.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $1.0B | $1.4B | $1.9B |
| YoY Growth | — | +44.2% | +34.5% |
| EBITDA | $200M | $523M | $766M |
| EBITDA Margin | 19.9% | 36.1% | 39.3% |
Projections are the median of 5 independent model runs.
For FY2026, management guided revenue of greater than $1.3 billion, more than 30% growth, with advanced packaging up more than 50% and advanced nodes up about 25%. Second-half revenue is expected to be at least 15% above the first half. Gross margin is guided to improve at least 50 basis points per quarter in Q3 and Q4, with a Q4 exit operating margin above 30%. For Q2, guidance was revenue of $320–330 million, gross margin of 56.0–56.5%, operating expenses of $90–92 million, an operating margin of 28.0–28.6%, and non-GAAP EPS of about $1.69 at the midpoint, on assumptions of a roughly 15% non-GAAP tax rate and a share count slightly above 50 million. Management flagged memory, fuel, and shipping input-cost headwinds plus R&D and service investments, while pointing to extended-factory benefits as the margin driver. No updated full-year guidance appears in the source set after the Q2 beat.
What Could Go Right — and Wrong
- Dragonfly G5 converts its pipeline — over 15 distinct applications across more than 10 customers — into production orders.
- The unnamed HBM customer's $240 million agreement shifts further into 2026 and is followed by additional volume purchase agreements, which management says are in discussions.
- JetStep panel-level qualifications at two packaging suppliers to AI device manufacturers turn into 2027 production ramps, extending the roughly $200 million JetStep and Firefly opportunity.
- Atlas G6 adoption, integrated metrology ramping at two logic customers, and the Atlas TSV application win broaden advanced nodes beyond memory.
- The gross-margin cadence holds at 50 basis points or better per quarter and the Q4 operating margin clears 30%.
- G5 is still a small part of 2026, so its large financial contribution depends on 2027 ramp execution that has not happened yet.
- The $240 million HBM agreement pauses or pushes out if the unnamed customer's capacity is delayed; it was not updated on the May call.
- Precision optics lead times extend far enough to delay G5 or Atlas shipments.
- KLA and Camtek keep investing in the same packaging process-control market, and Camtek has disclosed a more than $260 million HBM-related order or forecast.
- The Rigaku stake introduces fair-value gains and losses in other income each period without consolidating Rigaku revenue.
Looking Ahead
The next twelve months turn on execution rather than a new demand story. Management has to ship G5 in increasing volume through the fourth quarter, hold the guided margin cadence, and begin initial Atlas TSV shipments in the second half of 2026. The larger 2027 setup — JetStep panel ramps, HBM agreement shipments, and any additional volume purchase agreements — is where the guided growth steps up and where the model's second year rests. The December 17, 2026 analyst event is the next scheduled management session and the first chance to hear long-range framing.
- 2H 2026Atlas TSV shipments — Initial shipments of the new Atlas TSV metrology application.
- Q3/Q4 2026Margin cadence — Gross margin guided up at least 50 bps per quarter.
- Q4 2026Operating margin exit — Management targets an exit operating margin above 30%.
- December 17, 2026Analyst event at NYSE — Next scheduled management session; no 2027 growth rate committed.
- 2027JetStep panel ramp — Two AI packaging supplier qualifications expected to ramp.
- Through 2027HBM agreement shipments — The over $240M Dragonfly 2D and 3D metrology agreement ships.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $987M | $1.0B | $1.1B | +1.8% |
| Gross Margin | 52.2% | 49.8% | 50.3% | 248bps |
| EBITDA | $249M | $200M | $246M | -19.7% |
| EBITDA Margin | 25.3% | 19.9% | 22.0% | 535bps |
| Net Income | $202M | $137M | $133M | -32.2% |
| Free Cash Flow | $214M | $300M | $252M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)50.3%
- EBITDA Margin (TTM)22.0%
- Net Margin (TTM)11.8%
- ROIC7.3%
- FCF Conversion102.5%
- SBC / Revenue2.8%
The Company
Onto Innovation makes metrology and inspection tools for semiconductor manufacturing — the process-control step that checks whether a wafer or a package was built correctly. Its tools measure film thickness, find defects, and inspect the solder bumps and interconnects that connect chips. As AI chips moved to high-bandwidth memory, 2.5D logic packaging, and hybrid bonding, the number of measurement steps per device grew, and the 10-K describes ONTO as a worldwide leader in these tools. Bumps that were about 15 to 25 microns high two years ago are now being sampled below 6 microns, which raises how much inspection each package needs.
The company reports as a single operating segment; the 10-Q puts the whole business in one reportable segment, while management discusses product and market categories for forecasting. Engineering, manufacturing, and service sites sit in Massachusetts, California, New Jersey, Minnesota, Oregon, Washington, Arizona, and Florida, with sales and service in South Korea, Taiwan, China, Japan, and Singapore. Headcount was about 1,790 at March 31, 2026. Management points to "extended factories" as a capacity and margin initiative — more than 50% of tools shipped in Q4 2025 came from extended factories, and management says historical capacity was set up to serve a $2 billion run rate.
Business Segments
Competitive Landscape
The 10-K names the competitors ONTO faces by product area. In advanced packaging inspection it names KLA and Camtek Ltd.; in advanced packaging lithography, Ushio, Inc. and Canon, Inc.; and in software products, PDF Solutions, Inc. Beyond the filing, the source set shows rising competitive investment in the same packaging process-control market — external neighbor disclosures put KLA's advanced packaging process-control portfolio growing from about $635 million in 2025 toward about $1 billion in 2026, and Camtek has disclosed a more than $260 million HBM-related order or forecast. ONTO's own framing is that head-to-head wins shift some opportunities back to it.
- KLANamed in ONTO's 10-K for advanced packaging inspection; the filing does not discuss it further.
- Camtek Ltd.Named in ONTO's 10-K for advanced packaging inspection; the filing does not discuss it further.
- Ushio, Inc.Named in ONTO's 10-K for advanced packaging lithography; not discussed further.
- Canon, Inc.Named in ONTO's 10-K for advanced packaging lithography; not discussed further.
- PDF Solutions, Inc.Named in ONTO's 10-K for software products; not discussed further.
Supply Chain
Onto sits between component and subsystem suppliers and the chipmakers, foundries, and packaging houses that buy its tools. Its filings do not name suppliers, and it discloses customers only in aggregate, so the chain below is described mostly by category rather than by name.